U.S. leaders question need for Strategic Petroleum Reserve

SPR created after the Arab oil embargo to provide a buffer against possible supply shocks.

By Daniel J. Graeber

House leaders call for government study on whether or not to
continue with the Strategic Petroleum Reserve. File Photo by
sakhorn/Shutterstock

Members of a
House energy panel said they wanted a federal investigation into whether
or not the nation's Strategic Petroleum Reserve should be maintained.

The U.S. Strategic Petroleum Reserve was
established in 1975 in response to the oil embargo enacted by Arab
members of the Organization of Petroleum Exporting Countries. With a
design capacity of more than 720 million barrels, it's the largest
emergency supply of oil in the world.

Emergency drawdowns in the past were
coordinated around international events like the first Gulf War and the
onset of civil war in Libya, as well as domestic catastrophes like
Hurricane Isaac in 2012. A test sale of oil from the SPR was conducted
in 2014 and laws passed recently in the United States permit further
sales.

Last year, U.S. Sen. Lisa Murkowski, R-Alaska, said she was frustrated
with lack of funding necessary to modernize the SPR. Her ire followed
support for a bipartisan Senate measure that would use SPR as a cash
reserve to help keep the federal highway trust fund afloat.

In a letter
to the Government Accountability Office, members of the U.S. House
Energy and Commerce Committee said additional studies into the SPR are
needed. Members called for an examination of "cost-effective" options to
protect the U.S. market from supply shocks "including whether or not
the SPR should be maintained and, if so, the optimal configuration,
management and operations, including commercialization and privatization
of federal assets."

Congress has approved up to $2 billion to
modernize the SPR, of which $375 million has been appropriated. Given
the level of investments, the House panel said the GAO should look at
more cost-effective ways to address U.S. energy security needs.

Shifts in U.S. midstream infrastructure, or
oil and gas pipelines, have reduced the SPR's ability to add barrels to
the market, they said.

"These findings suggest that the SPR may have difficulty meeting its energy security mission," the letter to the GAO read.

The onset of the U.S. shale oil and gas era
added significantly more barrels to the domestic market. Total U.S.
crude oil production in 1975, when the SPR was established, was around
8.3 million barrels per day thanks in part to oil from Alaska. Output
dropped to 5 million bpd in 2008 and peaked at 9.4 million bpd last
year. The U.S. Energy Information Administration estimates 2017
production will average 8.8 million bpd next year.

As a member of the International Energy
Agency, the United States is obligated to hold stocks equivalent to 90
days of oil imports in order to ensure energy security in the event of a
disruption. Among the issues raised by the House panel was "U.S.
participation in the IEA."